2. Assume that the balance of accounts payable does not change during a period. When preparing a statement of cash flows, an increase in ending inventory over beginning inventory will result in an adjustment to cost of goods sold under the direct approach because

Question 2 options:

1) the amount of cost of goods sold is equal to the amount of cash paid for purchases. 2) consumed inventory is an expense but not a use of funds. 3) the amount of cost of goods sold on an accrual basis is less than the amount of cash paid for purchases of inventory. 4) the amount of cash paid for purchases of inventory is less than the amount of cost of goods sold on an accrual basis.

3. Which of the following items would not be included in a statement of cash flows prepared using the direct method?

Question 3 options:

A)	Net income.

B)	Cash paid for dividends.

C)	Sale of a plant asset.

D)	Cash payments for purchases.

4. On a statement of cash flows prepared using the direct method, if inventory has decreased from one accounting period to another, net purchases will be greater than the cost of goods sold because net purchases during the period have exceeded the dollar amount of the items sold during the period.

Question 4 options:

	A) True
	B) False

5. Determining net cash flows from operating activities using the direct method reveals cash collected from customers.

Question 5 options:

	A) True
	B) False

6. On a statement of cash flows prepared using the direct method, if Income Taxes Payable decreased during the accounting period, cash payments for taxes will be less than the expense shown on the income statement.

Question 6 options:

	A) True
	B) False